Greetings and welcome to the STAG Industrial Second Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Matts Pinard, Senior Vice President of Investor Relations. Thank you, sir. You may begin.

Thank you. Welcome to STAG Industrial's conference call covering the second quarter 2020 results. In addition to the press release distributed yesterday, we posted an unaudited quarterly supplemental informational presentation on the Company's website at stagindustrial.com under the Investor Relations section. On today's call, the Company's prepared remarks and answers to your questions will contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. Examples of forward-looking statements include statements relating to earnings trends, G&A amounts, acquisition and disposition volumes, retention rates, debt capacity, dividend rates, industry and economic trends and other matters. We encourage all of our listeners to review the more detailed discussion related to these forward-looking statements contained in the Company's filings with the SEC, and the definitions and reconciliations of non-GAAP measures contained in the supplemental informational package available on the Company's website. As a reminder, forward-looking statements represent management's estimates as of today. STAG Industrial assumes no obligation to update any forward-looking statements. On today's call, you will hear from Ben Butcher, our Chief Executive Officer; and Bill Crooker, our Chief Financial Officer. I will now turn the call over to Ben.

Thank you, Matts. Good morning, everybody, and welcome to the second quarter earnings call for STAG Industrial. We're pleased to have you join us and look forward to telling you about our second quarter results. Presenting today in addition to myself will be Bill Crooker, our Chief Financial Officer, who will discuss the bulk of the financial and operational data. With me today are Steve Mackey, our Chief Operating Officer; and Dave King, our Director of Real Estate Operations. They will be available to answer questions specific to their areas of focus. As we enter the month of August, there continue to be more questions than concrete answers around important items that impact all of our daily lives. Will there be a second wave of COVID-19? If so, how will this impact the reopening of our economy? Will students return to the classroom or be educated virtually? Will employees return to the office or continue to work from home? On top of these unanswered questions, we have the upcoming presidential election in November amid excessive levels of polarization. However, we do know consumer behavior has been changed by necessity and the acceleration of already in place trends. Many of these changes are likely permanent as we settle into the post-COVID new normal. The issue of whether an e-commerce presence and associated supply chain are required is no longer a question for most businesses of size; an e-commerce presence is required to compete effectively. Not surprisingly, in this environment, Amazon continues to be our largest tenant. This dominant e-commerce company now accounts for 2.5% of our annualized base revenue. This includes the recent leasing activity we have specifically discussed in conference calls and at conferences. Across our platform, we continue to see the build-out of e-commerce supply chain as a large and growing demand driver for industrial real estate. Let me now discuss the leasing status for the four buildings that have been highlighted in our recent communications. Our building in Hampstead, Maryland, a 1 million square foot building to be vacated by Solo Cup in July, has seen a healthy amount of leasing activity over the past two months. Our initial expectation was that it would take 12 to 18 months to accomplish the release of this building. Based on current information, we expect to outperform that estimate. Our value-add project in Taunton, Massachusetts, a 350,000 square foot building was acquired last year subject to a short-term lease to a known vacate tenant. The building received strong inquiries from a variety of tenants mostly for e-commerce use. We are happy to report that we have secured an 11-year lease to a dominant e-commerce tenant for the full building. In addition, we secured a termination fee of over half a million dollars from the vacating tenant. The resulting zero downtime and the achieved rent significantly outperformed our budget and expectations. Our speculative development in Burlington, New Jersey, a 250,000 square foot building that sits in one of the strongest strategic distribution markets on the East Coast, near the New Jersey Turnpike, has successfully executed a full building lease to a dominant e-commerce tenant, again outperforming our expectations on both rent and lease uptime. Finally, we've determined the optimal path forward for other buildings in Burlington, New Jersey, the 1 million square foot building that GSA will vacate in December. You may recall this asset also includes 40 acres of land adjacent to the building with development potential of over 500,000 square feet. After evaluating multiple potential paths, we'll be moving forward to lease the existing building and to separately pursue the development of the land parcel. This decision was driven by the continued strong leasing velocity in the Exit 6A submarket. This strength has been evidenced by the multiple discussions we are having with potential full building users. We look forward to updating everybody with details on both components in the near future. In short, on these assets and across the portfolio, there has been very solid performance by our experienced and capable asset management team. With that, I'll turn it over to Bill, who will discuss our second quarter operational results and updates for 2020 guidance.

Thank you, Ben. Good morning everyone. Core FFO was $0.47 for the quarter, an increase of 4.4% compared to the second quarter of 2019. Leverage remains at the low end of our guidance at quarter end, and we expect leverage to normalize as we increase our acquisition activity moving into the second half of the year. Net debt to runway adjusted EBITDA is 4.3 times prior to factoring in the outside forward equity proceeds related to our January equity offering and 3.9 times when those proceeds are included. Acquisition volume for the second quarter totaled $11.9 million with stabilized cash and straight-line cap rates of 6.4% and 6.8%, respectively. Year-to-date, our acquisitions totaled $131.3 million. As stated in our guidance, we expect acquisition volume to increase in the second half of the year. During the quarter, we had 2.7 million square feet of operating leasing activity commence, with cash and straight-line reducing spreads of 1.6% and 9.6%, respectively. Note that the releasing spreads within our disclosure exclude the impact of short-term moves. Additionally, we released 482,000 square feet of value-add buildings during the quarter. Retention was 100% for the quarter and is 95% for the year. Same-store cash NOI grew by 2.1% for the quarter and 2.3% year-to-date, largely driven by a retention rate of 95%. For the quarter, we collected 98% of our base rental billing; of the remaining 2% of uncollected rent, 1.4% has been deferred, with repayment generally expected by year end. As of July 28, we have collected 90.9% of our July base rental billings. An additional 4.6% of July base rental billings yet to be received relates to investment grade tenants and tenants who pay in arrears. We expect these tenants to remit payments within the next two weeks, bringing the total to 95.5%. The timing of these expected payments is consistent with past practices; 2.8% of the remaining 4.5% of our uncollected base rental billings has been deferred. The remaining uncollected base rent billings are associated with smaller tenants that have been impacted by the pandemic. To date, we have received rent relief requests totaling 5.3% of ABR for $21.1 million. Of the $21.1 million rent relief requested, we have granted rent relief of approximately $2.1 million, equal to 52 basis points ABR. The general framework includes a period of rent deferral as opposed to abatement, with the deferred rent amounts to be repaid within the next 12 months. As of today, we have six tenants on cash basis accounting, given their financial situation and our view of their ability to pay due to the economic climate. We incurred a total of $1.5 million of credit loss related to these six tenants. Approximately, $900,000 of that loss related to the write-off of the straight-line rent, and approximately $600,000 of that loss related to cash credit loss. The cash credit loss equates to 20 basis points of our current same-store cash NOI credit loss guidance. These specific tenants account for approximately $4.2 million of ABR. Our credit loss guidance for 2020 includes the impacts related to these tenants. Moving to the capital market activity, on April 17, we refinanced term loans B and C, totaling $300 million, which were scheduled to mature this September and March of next year. STAG, at its sole discretion, has the option to execute two one-year expansion periods, which if both are exercised, would result in an outside maturity date in April of 2023. The term loan is fully swapped with an all-in fixed rate of 1.78% through April 2023. As a result of this transaction, we have no debt maturing until March of 2022, should we exercise our rights to extend. We've updated guidance based on our view of the remainder of 2020, continuing uncertainty related to the health of the economy, and we'll continue to update the market as warranted. Components of our updated 2020 guidance are as follows. We maintain the expected acquisition volume of between $300 million and $600 million for the year. We continue to expect all acquisitions to be stabilized assets with an expected cash cap rate range of 6.25% to 6.75%. Due to the expectation we will hold and not sell the GSA building in Burlington, New Jersey, we've reduced our disposition volume range to between $100 million and $150 million. We continue to expect retention to be within a range of 60% to 70%. The drivers for the lower than historical retention include the known non-retentions with Solo Cup and GSA. We expect that 2020 annual same-store pools cash NOI growth to be between 0 and 100 basis points for the year. This range includes a credit loss range of 100 to 150 basis points. We continue to expect G&A to be between $39 million and $41 million for the year. We expect to earn leverage between 4.5 times and 5.25 times for the year, with leverage increasing from the low end as we acquire more in the second half of the year. Capital expenditures per average square foot is still expected to be between $0.27 and $0.31 for the year and we continue to expect a range of core FFO per share between $1.80 and $1.88 for the year. I will now turn it back over to Ben.

Thank you, Bill. In closing, let me touch on two topics that have been at the forefront of national attention recently: the pandemic and persistent issues of inequality in our society. Our offices have been open for almost two months on a voluntary basis. However, for the most part, our employees have continued to work from home and work collaboratively and effectively. We are confident the procedures we have in place will allow a safe return for all employees to our office when conditions permit. We've always been proud to STAG as a place of opportunity and that we are a company that always tries to err on the side of doing the right thing. We have supported causes we believe in with both direct financial contributions and with paid volunteer hours. However, recent events have caused us to reflect and made us realize that we could and should do more as a company and for many of us more as individuals. Some of the things we're doing as a company include significantly increasing our annual budget for financial support for social causes. We're also expanding the opportunity for employees to engage in volunteer work in the community. We will be providing educational opportunities for our employees to further awareness and understanding on the subjects. Our hiring practices are being modified to ensure a broader and more diverse applicant pool for both full-time and intern hiring. We realize that as one small company, there's only so much we can do. We hope that the steps outlined above and others we are taking lead to the progress of making both our community and society more equitable and just. Thank you for your time this morning. I'll turn it back to the operator for questions.

Thank you. We will now be conducting a question-and-answer session. Thank you. Our first question comes from line of Manny Korchman with Citi. Please proceed with your question.

Good morning. This is Katie McConnell on for Manny. So, just based on the high level of retention achieved year-to-date, can you walk us through the downside scenario factored into your unchanged guidance range? And what degree of confidence do you have in retention for Q3?

So, the retention numbers for the remainder of the year are down, in large part because of the upcoming termination of the Solo Cup and GSA buildings. We're very confident in our operations and execution in those buildings, but these three factors will result in lower retention for the remainder of the year.

And then can you discuss the percentage of leases that were signed on a short-term basis this quarter and the economics of those deals?

In a downturn or recession, more short-term lease activity is expected. I'll ask Dave to provide a little more detail.

Anecdotally, there are some tenants who were looking to move to other buildings or build-to-suits that were delayed by COVID-related work stoppages. So, we've benefited from that in terms of short-term rentals.

Our next question comes from line of Sheila McGrath with Evercore. Please proceed with your question.

The value-add projects that you mentioned in Massachusetts and the development project in New Jersey, the speculative one, appeared to have had good outcomes. Any insights on how the yield on cost for these projects will shake out? And how that compares to your typical acquisition yield?

The yield on cost is easier to determine on a development project because it's just one product and everything goes in at once. So, I would say the yield on the Taunton facility is dramatically higher than expectations, nearing double digits for a straight yield on cost. A very successful project. The yield on cost for the Taunton facility is a little harder to assess because you're buying the building and then applying additional costs, but it still met our investment expectations by quite a wide margin. Those are both elements that we expect to enjoy very solid cash flows from for a long time.

On our acquisition guidance that remains unchanged. Year-to-date, we're at about $131 million. That would imply a very active third and fourth quarter. Just wondering if the pipeline is shaping up with a lot more acquisitions to occur pretty soon.

As you probably recall, the third and fourth quarters are almost always our biggest quarters. So, that plays a role. Our pipeline was reduced during the onset of the pandemic, but it's now picking back up and we're very confident in it. We’re bidding on more assets, and I think we’re in a good position.

In addition to that, our current pipeline sits at $1.8 billion, and we expect that to increase with more assets coming to market in August and September. Sellers had pulled some of their portfolios during the onset, and those are expected to come back to the market in the third quarter.

Do you think the forward equity is enough to fund your current expectations or will it require additional equity?

This year, it's not our expectation that we will need to access the equity markets, given our current guidance. Leverage sits at 3.9 times when including the forward equity, which is sufficient to acquire even the high end of our acquisition guidance without hitting the equity markets.

Our next question comes from the line of James Feldman with Bank of America Merrill Lynch. Please proceed with your question.

Good morning, guys. This is Elvis on for Jamie. Just touching upon Sheila's question regarding funding and highlighting the potential you'll do some equity in the future. Can you talk about how much of the acquisition pipeline you think you can do? Or could you end up at the higher end of that range at the end of this year or is there just not enough product?

We are not limited by capital in our acquisitions. We believe we can stay within the upper end of new guidance for this year. Longer-term, our guidance is as high as 6 times or 5.25 times. We can stay at that 5.25 and acquire $600 million of assets over the remainder of the year, giving us a total closer to three-quarters of a billion for the year.

Is there anything that you're seeing that gives you more confidence that you could do more than what you're saying? Your stock prices are back up at a level that makes it accretive to continue to do these deals. Just trying to understand what can change here in the back half of the year given the strong industrial pipeline?

It's a lot of uncertainty, but we are expecting more assets to come back to market come August and September. Our current pipeline gives us confidence, but we believe that the expected supply increase will allow us to move further into our guidance.

I'm also curious about the benefits you're starting to see in your portfolio or any early indications or signs of re-shoring and tenants starting to talk about using your assets or markets to bring some manufacturing back to the U.S.?

It's still early days on that front. The critical question around re-shoring is the cost. U.S. consumers may not accept significantly higher prices just to have products labeled as made in the U.S. Historically, re-shoring happens gradually. Our assets are well positioned, particularly around population centers, so they will benefit as this trend develops.

Our next question comes from Brendan Finn with Wells Fargo. Please proceed with your question.

I guess, Ben, in your opening remarks, you talked a lot about e-commerce. Can you comment on the trajectory of demand from e-commerce tenants? It seemed like initially we had a big surge of demand, but has gotten a bit of a slow down as we've moved into later Q2 and early Q3?

At a high level, there is an expectation that demand may slow down following the initial rush during the pandemic. However, we were still seeing many clients position themselves for further increases in e-commerce activity as we continue through the pandemic.

Initially, e-commerce share was high as most other participants receded from the market. As they have come back, e-commerce shares have dropped. We do see broad-based demand and close to normal demand in our vacancies and near-term rolls across a wide variety of industries.

On deferrals, it looks like the deferred rents picked up a little bit in July relative to the average monthly deferral rate for Q2. Is there a trend, or can you talk about what types of tenants are now receiving deferred rents that were not in Q2?

The tenants that received deferred rent in Q2 and July are from the same population of tenants. The increase in July is driven by some of those tenants paying April and May rent, and then agreeing to deferrals later in the quarter.

We haven't had any new deferral requests for some time. The total number of tenants who received deferrals to date is about eight tenants.

Your next question comes from the line of Michael Carroll with RBC. Please proceed with your question.

Ben, can you provide some more color on some of those larger blocks of available space that you highlighted, specifically regarding Solo Cup? A few months ago, it sounded like you had a lot of tenants looking at that space. How should we think about a lease being signed? Could that occur relatively soon and we can see that lease actually commence before year-end? What are the timing expectations there?

Without going too deeply into ongoing negotiations, we are very confident that we will have a lease in place this year.

And regarding the GSA property, can you talk about the activity around that building? Can we assume leases could occur much sooner than the typical 12-month downtime?

There's a lot of activity around that building; we're confident that we'll get something done in a shorter timeframe than 12 months.

Can you remind us where in-place rents are relative to market on that GSA property?

We're pretty close to market with some variability based on lease terms and tenant improvements.

Regarding the land parcel adjacent to that property, what are your expectations there? Do you plan on developing an asset on that parcel? If so, would you pursue that on a speculative basis?

Our plan is to continue the permitting process to increase the value of the land parcel and then evaluate whether we will build ourselves or someone else will. We had a good experience with nearby developments, and we're confident the market is active enough for someone to want to build on it, whether it's us or someone else.

How long does it take for the entitlement process? Can you start that now, or does the GSA lease make it more difficult until that lease expires?

We are able to start the process now, and in fact, it has already begun. The entitlement process is ongoing.

Can you talk about the lease commencements at the Burlington site in the Massachusetts property? When does rent actually start hitting the P&L?

Those leases are already impacting the P&L; one had one month of free rent, but is coming through straight line. So they began contributing in Q2, with one of the tougher changes happening in Q2 and the Burlington one starting in Q3.

Our next question comes from line of Dave Rogers with Baird. Please proceed with your question.

Good morning. I wanted to follow up on something Dave King mentioned earlier about short-term renewals for tenants that had planned to move out to build-to-suit. Is that generally in the nature of Solo Cup? Are these additional move-outs we shouldn't expect in six months down the road? Or is it going to be more early 2021 with an overall higher proportion of move-outs as you push these leases out a bit? Any more detail would be helpful.

That was just a reference to a couple of instances where we extended for a year because our projects were not ready, and these were smaller renewals.

In general, we haven't seen much demand for short-term leases. One of the surprises operationally has been the demand for longer-term leases even during a recession. The typical playbook is shorter leases during a downturn, but we have seen demand for longer leases.

How would you discuss the rent negotiations with tenants? Are things still at pre-COVID levels or have they taken a pause in terms of growth? What have you seen in your markets?

There was a pause initially, but I don't think there has been a significant downturn. We haven't seen a contraction in rental prices overall.

Tenants are approaching this as a long-term situation that might have short-term disruptions. Pricing or rent levels haven't really moved much.

Overall, national absorption and supply numbers for both supply and demand are forecast to be down. However, we haven't seen a significant impact on the current leasing market.

Regarding acquisitions, have you seen a change in pricing? It appears that your cap rate expectations are largely similar to what they were before, but are the products you're looking at coming to market today less risky, keeping prices tighter?

The spread remains narrow in the industrial space. We were able to achieve some price concessions from pre-COVID pricing on deals we closed in June, with one of them as much as 2.6%. We're expecting similar pricing moving forward, perhaps with a slight discount, but nothing significant.

The assets that continued to perform well during the early pandemic were likely the lower-risk assets. The assets we expect to see come to market in August and September may have a wider range of risk profiles compared to those we saw earlier.

Our next question comes from line of Mike Muller with JP Morgan. Please proceed with your question.

Just a quick one. Can you provide some color on the negative leasing spreads from the new leases going forward?

Overall, the new leases have about an 11.5-year term, while the previous leases were around 3.5 years. We chose longer terms, which led to a reduction in the rate. In one instance, we got an above-market deal that benefited from a tax abatement that rolled off as we anticipated, contributing significantly to the lower rents.

Our next question comes from line of John Massocca with Ladenburg Thalmann. Please proceed with your question.

Touching on acquisitions, since you didn't close anything subsequent to quarter-end, how should we think about cadence over the remainder of the year? Will it be focused almost entirely on Q4 or do you expect the current pipeline to deliver results in the next couple of months?

We expect some acquisitions to close by the end of Q3, with most of the remaining acquisitions either under price agreement or contract. Many transactions have been stalled during May, but as assets start to come to the market, we anticipate closing several deals in Q3 and into Q4.

Regarding the six leases that go into cash accounting, what kind of recovery are you expecting there?

It's built into our credit loss guidance and FFO guidance for the year.

What kind of recovery do you foresee, considering they might vacate the space?

For the remainder of the year, the recovery is close to zero at this point.

Your next question comes from Bill Crow with Raymond James. Please proceed.

Ben, stepping outside STAG for a second, how vital is new absorption from Amazon? How much attention do you pay to the second derivative for their leasing activity annually?

Amazon has been a huge absorber of space this year, and certainly at the end of last year. I don't believe it can sustain this pace forever. But they remain an aggressive player in e-commerce, along with several other significant tenants. So while they are critical, they are not the only drivers of demand we have.

We have no further questions at this time, Mr. Butcher. I would now like to turn the floor back over to you for closing comments.

Thank you, operator. Thank you all for joining us this morning. STAG is in a really good place. Our balance sheet is in great position, our employees are engaged and they're looking at a lot of opportunities. Our asset managers are accomplishing great things on the leasing front. Despite the fact we sit in pretty unsettled times, both on the pandemic and the political turmoil, the industrial sector is well-positioned and STAG is extremely well positioned within that sector. We're looking forward to a great second half of the year and to success beyond that. Thank you again.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.